The Republic of Latvia was proclaimed on November 18, 1918. Next steps that the new state took were creating the financial system and introducing the national currency of Latvia.

On 2 November, the Bank of Latvia issued provisional banknotes of 10-lats denomination — 500-ruble notes with an overprint. The Bank of Latvia comprised both the functions of a central bank (currency issuance, control of currency backing and currency circulation) and a commercial bank (lending to and financing of public and private enterprises, institutions, and individuals).

The Bank's structure was elaborated as follows in 1924: a Head Office (2A K. Valdemara Street, Riga), eight branches conducting all banking operations, and fourteen branches functioning as the State Treasury and accepting deposits. This was the structure of the Bank until 1940.

The law nationalizing banks and large industrial enterprises was adopted on 25 July 1940. The nationalized credit institutions were merged and reorganized into branches of the Bank of Latvia.

On 2 March 1990, the Supreme Council of the Latvian SSR (USSR unit at that time) adopted the Law On Banks and the Resolution On the Bank of Latvia.

Latvia joined the IMF on 19 May 1992. The legal basis for the cooperation between Latvia and the IMF is governed by the law of 15 April 1992 on the Republic of Latvia's accession to the International Monetary Fund (IMF). The International Monetary Fund is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. In 1992, there were 50 active banks, whereby the number of active banks rose to 80 in the following year.

The 2008 Latvian financial crisis, which stemmed from the global financial crisis of 2008–2009, was a major economic and political crisis in Latvia. Interestingly enough, the number of officially registered banks in Latvia climbed up from 28 to 29 despite the crisis. The crisis was generated by an easy-credit market burst, resulting in an unemployment crisis along with the bankruptcy of many companies.

Since 2010, economic activity has recovered and Latvia's economic growth rate was the fastest among the EU member states during the first three quarters of 2012. 29 active banks proceeded with their activities in the territory of Latvia in 2012. On 12 October 2011, the Bank of Latvia hosted its annual conference on economic development. This year it was titled Global Challenges and Local Opportunities: Achievements and Prospects in the Baltic States.

In early July 2013, EU finance ministers approved Latvia as the 18th member of the Eurozone, a formality that put the country on course to begin using the currency on 1 January 2014.

As of 1 January, Latvia is using the euro as its official currency and thus is a part of eurozone.